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Gold & Silver Daily

Ed's Critical Reads

Apr 17, 2014

Path to Extinction: Only Three US Companies Still Have AAA Credit Ratings

Their numbers have been dwindling for years, and now only three U.S. companies have the coveted AAA credit rating from Standard & Poor's.

Automatic Data Processing was the latest U.S. blue chip to lose its pristine AAA rating from S&P, downgraded this week after it spun off its auto-dealers services unit, USAToday noted.

That leaves only Johnson & Johnson, Exxon-Mobil, and Microsoft as companies rated AAA, which is reserved for companies with the unassailable financial strength and discipline.

In 1980, there were more than 60 U.S. companies with AAA ratings. That number declined to six in 2008. Since then, General Electric, Pfizer, and now ADP have fallen out of that esteemed ranking.

Today's first news item was posted on the moneynews.com Internet site early yesterday morning EDT---and it's courtesy of West Virginia reader Elliot Simon.

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Yellen: Fed Stimulus Still Needed for Job Market

Federal Reserve Chair Janet Yellen said Wednesday that the U.S. job market still needs help from the Fed and that the central bank must remain intent on adjusting its policy to respond to unforeseen challenges.

In her first major speech on Fed policy, Yellen sought to explain the Fed's shifting guidance on its interest-rate policy, which at times has confused or jarred investors. She said the Fed's policies "must respond to significant unexpected twist and turns the economy may make."

"Thus far in the recovery and to this day, there is little question that the economy has remained far from maximum employment," Yellen told an audience at the Economic Club of New York.

She said the Fed's forecast for moderate growth has changed little since last fall despite the severe winter. Fed officials still see only a gradual return to full employment over the next two to three years, Yellen said.

This AP news item was picked up ABC News yesterday---and it's the second offering in a row from Elliot Simon.

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Spain ETF Grows as Rajoy Attracts Record US Investments

The iShares MSCI Spain Capped ETF attracted almost $238 million in the period ended April 11, the most for any country, according to data compiled by Bloomberg going back to 2002. Traders have poured money into the exchange-traded fund every week in 2014. The $1.9-billion ETF tracking companies from Banco Santander (SAN) SA to Telefonica SA has gained 5.3% this year, compared with declines in the Standard & Poor’s 500 Index and the Stoxx Europe 600 Index.

Confidence is growing that Prime Minister Mariano Rajoy will make good on his pledge to complete an overhaul of Spain’s economy as the nation that sought a bank bailout in 2012 returns to growth. A manufacturing report this month pointed to the fastest expansion since at least April 2011, and lenders from Santander to Banco Popular Espanol SA (POP) are benefiting from European Central Bank President Mario Draghi’s policy to keep interest rates at a record low.

This longish Bloomberg article, filed from London, was posted on their Internet site late yesterday morning MDT---and that makes it three in a row from Elliot Simon.

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Regional Unemployment Highest in Spain

Over two dozen regions throughout the Union have an unemployment rate twice the EU average.

The data, published on Wednesday (16 April), by the EU’s statistical office Eurostat, says the jobless rate in 27 regions in 2013 was higher than 21.6%.

Thirteen are found in Spain, 10 in Greece, three in the French Overseas Departments, and one in Italy.

Five of the worst affected are found in Spain alone.

This story, filed from Brussels, showed up on the euobserver.com Internet site yesterday morning---and it's the first offering of the day from Roy Stephens.

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Eurozone Inflation Stuck in "Danger Zone," Keeps Pressure on the ECB

A shock drop in March eurozone inflation to its lowest level since November 2009 was confirmed on Wednesday, keeping pressure on the European Central Bank to intervene should prices not rebound.

The year-on-year inflation rate in the 18 countries sharing the euro was 0.5% in March against 0.7% in February, the European Union's statistics office Eurostat said.

Inflation has now been in the ECB's "danger zone" of below 1% for six consecutive months, fuelling speculation that the ECB will need to take further action.

ECB policy makers said the bank stood ready to deploy unconventional measures to ensure that inflation did not stay low for too long.

This short, but must-read commentary, was posted on the moneynews.com Internet site early yesterday morning EDT---and it's the fourth and final offering of the day from Elliot Simon.

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Out of Ammo? The Eroding Power of Central Banks

Since the financial crisis, central banks have slashed interest rates, purchased vast quantities of sovereign bonds, and bailed out banks. Now, though, their influence appears to be on the wane with measures producing paltry results. Do they still have control?

Once every six weeks, the most powerful players in the global economy meet on the 18th floor of an ugly office building near the train station in the Swiss city of Basel. The group includes United States Federal Reserve Chair Janet Yellen and her counterpart at the European Central Bank (ECB), Mario Draghi, along with 16 other top monetary policy officials from Beijing, Frankfurt, Paris, and elsewhere.

The attendees spend almost two hours exchanging views in a debate chaired by Bank of Mexico Governor Agustín Carstens---and the central bankers talk about the economy, growth and market prices.

But ever since many central banks lowered their interest rates to almost zero, bought up sovereign debt and rescued banks, a new, critical undertone has crept into the dinner conversations. Monetary experts from emerging economies complain that the measures taken by Europeans and Americans are pushing unwanted speculative money their way. Western central bankers say they have come under growing political pressure. And recently, when the host of the meetings -- head of the Basel-based Bank for International Settlements Jaime Caruana -- speaks in one of his rare public appearances, he talks about "chronic post-crisis weakness" and "risk." Monetary institutions, says Caruana, are at "serious risk of exhausting the policy room for manoeuver over time."

This longish five-page essay showed up on the spiegel.de Internet site early yesterday afternoon Europe time---and it's the second offering of the day from Roy Stephens. It's definitely worth reading.

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EU Countries to Boost Defence Budgets in Light of Ukraine

Military chiefs have said the Ukraine crisis is a “wake-up call” for E.U. countries’ defence spending, as the US backed Ukraine’s use of force in eastern regions.

Speaking to press after a regular meeting of E.U. defence ministers in Luxembourg on Tuesday (15 April), the deputy chief of the EU’s external action service, Maciej Popowski, said: “We’ve had 70 years of peace now [in Europe], but we see that power politics is back with a vengeance, so it’s a wake-up call and now we need to get serious about defence.”

He noted that “this was the feeling around the table” at the Luxembourg event.

He added that E.U. foreign relations chief Catherine Ashton told the ministers: “If Ukraine is not a trigger to get serious about spending, about pooling and sharing, about smart defence, then what more do we need to get real?”

Blah, blah, blah.  I'll be amazed if this amounts to anything more than talk.  This "news" item was posted on the euobserver.com Internet site yesterday morning Europe time---and I thank Roy Stephens once again for sending it our way.

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Three King World News Blogs

1. Grant Williams: "Remarkable Road Map From $5,000 to $20,000 Gold"  2. Eric Sprott: "Crisis, Gold---and an Incredible Opportunity No One is Looking At"  3. David P: "One of the Greatest Opportunities in More Than a Decade"

[Please direct any questions or comments about what is said in these interviews by either Eric King or his guests to them, and not to me. Thank you. - Ed]

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Scientists Verify World's Largest Single Crystal Piece of Gold

Scientists at Los Alamos National Laboratory in the U.S. have confirmed a 7.68 oz (217.78 g) piece of gold is in fact a single crystal, increasing its value from around US$10,000 to an estimated $1.5 million. The specimen, the largest single crystal piece of gold in the world, was discovered in Venezuela decades ago, but it is only by using advanced probing instruments that experts can now verify its authenticity.

Gold found in the ground will generally have a polycrystalline structure, meaning it is made up of many crystallites, varying in shape and size. Gold of a mono-crystalline structure, where the material is unbroken, are rarer and of significantly higher value. The US-based owner provided geologist John Rakovon with four gold specimens, hoping to determine whether they were of a polycrystalline or mono-crystalline structure.

This very interesting news item, complete with an embedded video, showed up on the gizmag.com Internet yesterday---and my thanks go out to Saskatoon, Saskatchewan reader Marvin Weiler for bringing it to my attention---and now to yours.  If you don't read the article, you should at least look at the picture.

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How Marriage Is Keeping Gold’s Prospects Bright in China

Last year was a big one for gold in China. As Chinese middle-class families, particularly aunties, bought up gold bars and jewelry for their use as accessories as well as investments, China became both the number-one producer and consumer of the precious metal—surpassing even India where yearly bullion demand had long been the world’s highest.

This year, with prices up of gold up, a government campaign against conspicuous spending by officials, and financial reforms designed to increase the availability of other investment opportunities, a new report from the World Gold Council predicts that demand for the metal won’t be as strong as last year.

But there’s one segment of the market that has and should continue to underpin China’s appetite for gold—newlyweds and the people who want to wish them well.

This short, but rather interesting gold-related article showed up on the qz.com Internet site on Tuesday---I found it posted over at the Sharps Pixley website---and here's another article on the same subject from the mining.com Internet site.

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Gold Import Curbs Seen Continuing in India to Help Currency

India, the world’s second-largest gold consumer, will probably keep restrictions on imports to control the current account deficit and defend the rupee, said the managing director of the country’s biggest refiner.

The limits would result in shipments of 650 metric tons to 700 tons in the 12 months started April 1 from 650 tons a year earlier, according to Rajesh Khosla at MMTC-PAMP India Pvt. Purchases were 845 tons in 2012-2013, the finance ministry says. While the form of restrictions may change, the government will continue to restrain buying, he said in an interview.

India represented about 25% of global demand in 2013, the World Gold Council says. Prime Minister Manmohan Singh requires importers to supply 20% of purchases to jewelers for export and sell 80% on the local market. Singh also raised import taxes and only allows banks and government-nominated entities to ship in gold. The new finance minister may review the rules after elections in progress now.

This news item, filed from New Delhi, was posted on the Bloomberg website just before midnight last night Denver time---and it's another story that I "borrowed" from the Sharps Pixley Web site.

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India’s Gold Demand Surges as Supply Declines

Amidst high import duties, the gold demand in India likely to stay high in this year. Last year, India consumed 975 tons and it expects to be between 900 and 1,000 metric tons in 2014.

According to the World Council, last year China overtook India as the biggest consumer of gold in the world and both countries seem to want more gold for further days.

As per the report, India’s current account deficit was narrowed by the stringent import restrictions over the last year whereas the gold smuggling increased, approximately 200 tons of gold. The customs department seized less than 1% of smuggled gold in the last year.

This very short gold-related news item, filed from Mumbai, showed up on the metal.com Internet site in the wee hours of the morning British Summer Time [BST].  It's another story I found over at the sharpspixley.com Internet site just after midnight Denver time [BST-7].

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India's Pain Is UAE's Gain - Indian Expats Buy Up Gold Jewellery

If any nation is happy about India's gold import curbs it is the UAE, where bullion traders are registering brisk sales given the restrictions on the import of the precious metal in India.

The curbs on gold in India have raised demand for gold and diamond-studded gold jewellery among expatriate Indians and visitors from India to the UAE.

"The UAE’s gold trade has become the de facto beneficiary of the Indian government’s tough stance on domestic consumption. There is almost a 16% difference on a per gram basis, in buying gold ornaments in the UAE as compared to buying gold in India," said an official at a store in Dubai's gold souk.

This interesting, but not surprising story, was posted on the mineweb.com Internet site yesterday---and it's worth reading.

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Lawrence Williams: Jansen Sticks By China Gold Demand Figures

There has been a considerable amount of disagreement over China’s real gold demand figures – with some of the differences being accounted for by what is actually being included in the varying estimates, with different analysts coming up with figures between around 1,100 tonnes from organisations like GFMS to over 4,000 tonnes from Alasdair Macleod of Gold Money. While the 1,100 tonne estimates seem on the face of things to be unaccountably low given some of the published statistics on known Chinese imports, the Macleod figures seem unaccountably high.

Somewhere in the middle comes the detailed analyses from China gold watcher Koos Jansen as published on his In Gold we Trust website, and he has now put out a detailed response confirming his own figures and commenting that Macleod’s high figures include unintentional double counting – and given that Chinese sources for this information can be confusing and contradictory, this is not too surprising!

This commentary by Lawrie is definitely worth reading---and it was posted on the mineweb.com Internet site sometime yesterday.

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Apr 16, 2014

Debt Burdens Soar for Major US Companies

Large U.S. companies have more than tripled their debt loads in the past three years, enabling them to spend money without dipping into their record-high cash reserves.

The spending has included share buybacks, dividends and capital investments. Stock buybacks and dividends registered $214.4 billion in the fourth quarter, according to The Wall Street Journal.

The companies are reluctant to spend cash partly because much of it is held offshore and would be subject to taxes if repatriated, the Financial Times reports.

From 2010 to 2013, the 1,100 companies rated by Standard & Poor's for five years or longer saw their combined cash reserves climb $204 billion to $1.23 trillion, according to the FT. That pales in comparison to the $748 billion jump in gross debt to $4 trillion during that period.

This short, but must read news item, was posted on the moneynews.com Internet site early yesterday morning EDT---and today's first story is courtesy of West Virginia reader Elliot Simon.

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France Is the New Cauldron of Eurosceptic Revolution

Britain is marginal to the great debate on Europe. France is the linchpin, fast becoming a cauldron of Eurosceptic/Poujadist views on the Right, anti-EMU reflationary Keynesian views on the Left, mixed with soul-searching over the wisdom of monetary union across the French establishment.

Marine Le Pen’s Front National leads the latest IFOP poll for the European elections next month at 24%. Her platform calls for immediate steps to ditch the euro and restore the franc (“franc des Anglais” in origin, rid of the English oppressors), and to hold a referendum on withdrawal from the EU.

The Gaullistes are at 22.5%. The great centre-Right party of post-War French politics is failing dismally to capitalise on the collapse in support for President François Hollande.

The Parti Socialiste is trailing at 20.5%. The Leftist Front de Gauche is at 8.5% and they are not exactly friends of Brussels.

This Ambrose Evans-Pritchard blog was posted on the telegraph.co.uk Internet site yesterday sometime---and it's the first story of the day from Roy Stephens.

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Russian Holdings of Treasuries Fall to Lowest Since 2011

Russian holdings declined for a fourth straight month, to $126.2 billion, from $131.8 billion in January, according to figures released today in Washington as a part of a monthly report on foreign holders of Treasuries as well as international portfolio flows.

Russia might have been selling Treasuries, world’s most liquid assets, as part of an effort to limit a decline in the ruble, which lost 2% versus the dollar in February, the biggest drop that month among 24 emerging-market peers tracked by Bloomberg. The currency weakened amid rising tensions in Ukraine’s Crimean peninsula.

“Russia’s been slowly shedding holdings,” said Gennadiy Goldberg, a U.S. strategist at TD Securities USA LLC in New York. “When you try to defend your currency, this is when you really use those Treasury reserves.”

Russia might have also switched custodian from the Federal Reserve to an offshore center, based perhaps in the U.K., said Sebastien Galy, a senior currency strategist at Société Générale SA in New York. If that were the case, the securities would show up in the Treasury’s survey as British holdings.

This Bloomberg news item, filed from Washington, appeared on their Internet site late yesterday morning Denver time---and my thanks go out to Washington state reader S.A. for sending it along.

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Russia's Bond Market Is Achilles Heel as Showdown with West Escalates

Russia is at increasing risk of a full-blown financial crisis as the West tightens sanctions and Russian meddling in Ukraine pushes the region towards conflagration.

The country’s private companies have been shut out of global capital markets almost entirely since the crisis erupted, causing a serious credit crunch and raising concerns that firms may not be able to refinace debt without Russian state support.

“No Eurobonds have been rolled over for six weeks. This cannot continue for long and is becoming a massive issue,” said an official from a major Russian bank. “Companies have to roll over $10bn a month and nothing is moving. The markets have been remarkably relaxed about this, given how dangerous it is. Russia’s greatest vulnerability is the bond market,” he said.

This is another offering from Ambrose Evans-Pritchard.  This one was posted on The Telegraph's Web site late on Monday evening BST---and it's the second contribution of the day from Roy Stephens.  It's worth skimming.

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BRICS Countries to Set Up Their Own IMF

Very soon, the IMF will cease to be the world's only organization capable of rendering international financial assistance. The BRICS countries are setting up alternative institutions, including a currency reserve pool and a development bank.

The BRICS countries (Brazil, Russia, India, China and South Africa) have made significant progress in setting up structures that would serve as an alternative to the International Monetary Fund and the World Bank, which are dominated by the U.S. and the EU. A currency reserve pool, as a replacement for the IMF, and a BRICS development bank, as a replacement for the World Bank, will begin operating as soon as in 2015, Russian Ambassador at Large Vadim Lukov has said.

Brazil has already drafted a charter for the BRICS Development Bank, while Russia is drawing up intergovernmental agreements on setting the bank up, he added.

In addition, the BRICS countries have already agreed on the amount of authorized capital for the new institutions: $100 billion each. "Talks are under way on the distribution of the initial capital of $50 billion between the partners and on the location for the headquarters of the bank.

This story was posted on the Russia Beyond the Headlines Web site on Monday---and it's courtesy of Elliot Simon.

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Chinese Economic Growth Continues to Slow

China's Q1 GDP beat expectations rising 7.4% year-over-year.

Economists polled by Bloomberg were looking for Q1 GDP to rise 7.3%. But this was down from 7.7% the previous quarter, showing that China's economy continues to slow. 

Quarter-over-quarter however GDP was up 1.4% or 5.7% annualized. This was also slower than revised 1.7% growth in Q4 2013 and 7% annualized.

Meanwhile, year-to-date Chinese retail sales were up 12%, beating expectations for an 11.9% rise. For March, retail sales were up 12.2%.

I would expect that China's GDP numbers are massaged to perfection, just as much as the numbers coming out of the United States these days.  This business news item was posted on the Bloomberg Web site late yesterday evening MDT---and it's another contribution from Roy Stephens.

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Japan Risks Public Souring on Abenomics as Prices Surge

Prime Minister Shinzo Abe’s bid to vault Japan out of 15 years of deflation risks losing public support by spurring too much inflation too quickly as companies add extra price increases to this month’s sales-tax bump.

Businesses from Suntory Beverage and Food Ltd. to beef bowl chain Yoshinoya Holdings Co. have raised costs more than the 3 percentage point levy increase. This month’s inflation rate could be 3.5%, the fastest since 1982, according to Yoshiki Shinke, the most accurate forecaster of Japan’s economy for two years running in data compiled by Bloomberg.

The challenge for Abe and the Bank of Japan is to keep the public focused on the long-term benefits of exiting deflation when wages are yet to pick up and, according to BOJ board member Sayuri Shirai, most people still see price gains as “unfavorable.” Any jump in inflation that’s perceived as excessive by a population more used to prices falling could worsen consumer confidence and make it harder to boost growth.

A policy of "Inflate or die" is fraught with danger, as the Japanese government is discovering to its dismay.  This Bloomberg piece, filed from Tokyo, was posted on their Internet site in the wee hours of Monday morning Denver time.  I "borrowed" this story from yesterday's edition of the King Report---and it's worth reading.

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Kyle Bass: Why Japanese Bonds Look "Terrible"

Hayman Capital's Kyle Bass believes Wall Street's recent declines in the biotech and social media sector, which spread to global stock markets last week, shows cracks in the Japanese economy.

The Japanese Nikkei saw a huge drop last Friday, but the country's benchmark 10-year government bonds did not see yields change as investors fled stocks. Bass, one of the biggest critics of the Japanese economy, has made a big bet on Japan's economy devolving into a debt crisis.

During an interview on CNBC's "Squawk on the Street" on Tuesday, the hedge fund manager said questions remain whether Japan will lose control of interest rates or whether the yen can serve as an "escape valve." Bass sees inflation quickly surpassing Japaneses bond yields, he said.

Kyle only gets 1:03 minutes in this very brief appearance on CNBC yesterday---but it's a must watch.  I borrowed this from Tres Knippa's daily newsletter yesterday.

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Four King World News Blogs

1. Art Cashin: "The Reason Gold, Silver and Commodities Are Getting Smashed"  2. Dr. Stephen Leeb: "Gold and Silver Smashed as incredible Events Unfold in Europe"  3. Dr. Paul Craig Roberts: "U.S. Now Close to Total Collapse"  4. Gerald Celente: "The Vampire Squid, Gold and the Global Ponzi Scheme"

[Please direct any questions or comments about what is said in these interviews by either Eric King or his guests to them, and not to me. Thank you. - Ed]

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Zero Hedge: Gold Futures Halted Again on Latest Furious Slam Down

It seems the two words "fiduciary duty" are strangely missing from the dictionary of the new normal's asset management community. This morning, shortly before 8:27 a.m. ET, someone decided that it was the perfect time to dump thousands of gold futures contracts worth over half a billion dollars notional. This smashed gold futures down over $12 instantaneously, breaking below the 200-day moving averaged and triggering the futures exchange to halt trading in the precious metal for 10 seconds.

Ah, yes---there are those words "fiduciary duty" once again---the other thing, along with their testicles, that precious metal mining executives leave hanging on a nail in the hall closet before they head to the office.  This tiny Zero Hedge piece was posted on their Web site an hour after the Comex event itself---and the charts are worth a look.  I found this worthwhile news item in a GATA release yesterday.

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Dave Kranzler Reports on the Latest Manipulation of the Gold Price

Shortly after the Shanghai gold market closed last night, the market manipulators went to work on the gold price.  Gold was taken down another $20 during the morning trading in London, primarily in three HFT trading induced “mini flash crashes.” There were not any related news reports or events that would have triggered the relentless selling of paper gold (Comex futures via the Globex system and LBMA forward
contracts).

As soon as the Comex floor trading opened at 8:20 a.m. EST, nearly 4,000 contracts were dropped instantaneously onto the floor and into the Globex system.  This is over a half a billion dollars worth of gold – over 10 tonnes of paper gold – in a nanosecond.    This amount represents 47% of the amount of actual physical gold that was reported to be available for delivery by the Comex yesterday.  The sudden burst in volume halted the Comex computer system for 10 seconds.  The contract bomb caused an immediate $16 plunge in the price of gold.   Over a period of seven minutes from the time the Comex opened, over 14,000 contracts traded.  This represented over 18% of the total volume in Comex contracts that had traded in the previous 14 hours of trading starting at 6 p.m. EST the night before.

Obviously this is was intentional and determined selling  of paper gold for the purposes of driving the price a lot lower.  The news reported over the last 24 hours, if anything, should have caused the price of gold to move higher. This includes the re-escalation of the events in Ukraine, an inflation report released this morning which showed that the rate of inflation in March was double the rate that was expected by Wall Street forecasters and a report of manufacturing activity in the northeast which was significantly  lower than expected.

This short must read commentary showed up on the paulcraigroberts.org Internet site yesterday---and I thank Brad Robertson for sending our way.

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China Gold Demand Rising 25% by 2017 as Buyers Get Wealthier

Gold demand in China, which overtook India as the largest user last year, will rise about 25% in the next four years as an increasing population gets wealthier, according to the World Gold Council.

Consumer demand will expand to at least 1,350 metric tonnes by 2017, the London-based council said in a report today. Growth may be limited this year after 2013’s price decline spurred consumers to do more buying last year, it said. China accounted for about 28% of global usage last year, the council estimated in February.

Buying accelerated last year as prices slumped 28%, the most since 1981, and the nation became the top buyer in place of India, where import restrictions curbed demand. China’s economy will expand 7.4% this year, economists surveyed by Bloomberg estimate. While that’s set to be the least since 1990, it’s still more than double expected growth in the U.S.

This Bloomberg story showed up on their Web site during the Denver lunch hour yesterday MDT---and it's another gold-related story that I found over at the gata.org Internet site yesterday.  The World Gold Council's report on which this story is based is linked here.

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Much More to Come in China’s Already "Breathtaking" Gold Story

The scale, scope and speed of the development of the gold market in China to date has been “quite breathtaking” – and there is still a lot more to come, World Gold Council (WGC) investor relations manager John Mulligan indicated on Tuesday.

Speaking to Mining Weekly Online from London, Mulligan revealed that the WGC was engaged in ongoing discussions to support initiatives to make gold even more accessible in China and that various Chinese gold organisations were simultaneously setting out to modernise the entire gold supply chain from mining through to fabrication and appropriate technologies.

In its latest report, titled "China's gold market: progress and prospects," the WGC explains why the Chinese gold market will continue to expand, irrespective of short-term blips in the economy, and calculates that China’s middle class will grow by another 200 million people in the next six years, taking the total in the middle-income bracket to 500 million.

This is the same story as the prior Bloomberg piece, but with a slightly different spin.  This version, filed from Johannesburg, was posted on the miningweekly.com Internet site yesterday.  I thank reader Richard Murphy for finding it for us.

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Wall Street Journal Spins a Gold-Bullish Report to Bearish

China's appetite for gold is waning after a decade-long buying spree, suppressed by the country's economic slowdown and constrained credit markets.

Demand in the world's biggest gold consumer is likely to stay flat in 2014, according to estimates from the World Gold Council. Gold demand in China has expanded every year since 2002, when it declined, according to the industry group, whose forecasts are closely watched in the gold market.

Decelerating Chinese gold demand could threaten the recent recovery in gold prices, some investors and analysts say.

It's hard to believe that the WSJ could spin a sow's ear out of a silk purse, but when something has to be spun with a negative slants, there's always someone up to the task---especially when their jobs may be on the line if they don't.  A lot of gold and silver columnists and so-called experts fall neatly into this category as well.

The above three paragraphs are all there is to this WSJ story---at least that's all there is posted in the clear; and you need a subscription to read the rest.  This is another news item I found on the gata.org Internet site yesterday.

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Lawrence Williams: Chinese Take-Away – WGC Study Leaves Many Questions Unanswered

Further, although this report deals specifically with Chinese demand, the general urbanisation and earnings growth prevalent among the whole Asian gold-oriented populace – which hugely exceeds that of China alone – will also have a similar impact. Gold demand will be increasing hugely so where is the supply going to come from? And supply shortfalls will ultimately result in price increases – perhaps very substantial ones, but maybe not quite yet.

As gold bulls will be only too aware, such factors may take a long time to come to fruition and gold investment has to be seen as for the long term. It cannot be relied upon for short-term gains. That is very much the way the Asian market views it and ultimately – unless there is a total sea change in the way this sector views it – gold will undoubtedly prove perhaps the best asset class of all, particularly as the East begins to dominate global trade and finance as it surely will. Other assets will wax and wane but gold, which has stood the test of time through all kinds of political and financial upheavals over hundreds of years, will likely continue to do so in the years ahead.

Yes, one of these days the gold price will be allowed to rise to something resembling a fair market supply vs. demand price, but as Lawrie is more than aware, it will only happen with the blessing of JPMorgan et al.---and the rest of short sellers of last resort in the paper precious metal market.  This commentary was posted on the mineweb.com Internet site yesterday.

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Koos Jansen: Shanghai Gold Exchange Withdrawals Equal Chinese Gold Demand, Part 3

Gold researcher and GATA consultant Koos Jansen tonight provides his most detailed review yet of China's gold demand and explains why he thinks it is not as much as recently estimated by GoldMoney research director Alasdair Macleod.

Jansen's commentary is headlined Shanghai Gold Exchange Withdrawals Equal Chinese Gold Demand, Part 3, and it's posted at his Internet site, ingoldwetrust.ch.  And the GATA releases just keep on coming---and I thank Chris Powell for wordsmithing the paragraph of introduction.

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Hardly a Mention of Central Banks in Financial Times Report on London Gold Fix

The fix remains the global gold benchmark, used by miners, central banks, jewellers and the financial industry to trade gold bars, value stocks and price derivative contracts. The original five bullion dealers have been replaced by five banks: HSBC, Deutsche Bank, Scotiabank, Barclays, and Société Générale. But the process and traditions are little changed; had Rothschild not sold its fixing seat in 2004, the members might still be meeting in its oak-panelled boardroom with small Union Jack flags on their desks, rather than via conference call.

To supporters of the gold fixing, its longevity is a mark of its efficiency and utility. To a growing group of critics, however, the benchmark is opaque, old fashioned and vulnerable to market abuse.

Pressure to reform is coming from several directions.

Since uncovering evidence of alleged abuse by bankers of the Libor and forex benchmarks, regulators have been scrutinising other big financial benchmarks for signs of weakness. The German watchdog BaFin has requested documents from Deutsche Bank, which has put its seat up for sale, as part of a precious metals market review. Academics have questioned the fix's fairness and suggested possible collusion. Smelling blood, US lawyers launched at least three class action suits in March alleging rigging. From being an asset of considerable prestige, a fixing seat may be turning into a liability.

This longish Financial Times story from Monday---which is long on drivel and short on substance---was posted in the clear on the gata.org Internet site yesterday---and it's not worth reading, at least in my opinion.

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Apr 15, 2014

Mortgage Lending Drops to 17-Year Low as Rates Curb Borrowing

U.S. mortgage lending is contracting to levels not seen since 1997 — the year Tiger Woods won his first of four Masters championships — as rising interest rates and home prices drive away borrowers.

Wells Fargo & Co. and JPMorgan Chase & Co., the two largest U.S. mortgage lenders, reported a first-quarter plunge in loan volumes that’s part of an industry-wide dropoff. Lenders made $226 billion of mortgages in the period, the smallest quarterly amount since 1997 and less than one-third of the 2006 average, according to the Mortgage Bankers Association in Washington.

Lending has been tumbling since mid-2013 when mortgage rates jumped about a percentage point after the Federal Reserve said it might taper stimulus spending. A surge in all-cash purchases to more than 40% has kept housing prices rising, squeezing more Americans out of the market. That will help push lending down further this year, according to the association.

This article showed up on the moneynews.com Internet site yesterday---and I thank West Virginia reader Elliot Simon for sending it along very late last night.

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Tensions over Money Flows Bode Poorly for Global Economy

For a bunch of people who just agreed the global economy is doing better, top officials from the world's rich and poor nations sound rather worried.

For poor nations, the easy monetary policies in advanced economies are leading to big swings in capital flows that could destabilize emerging markets. For rich countries, the hoarding of currency by developing nations is blocking progress toward a more stable global economy.

Those tensions, which have been brewing for years, seemed to be rising as finance ministers and central bank chiefs from the Group of 20 economies gathered last week in Washington, as evidenced by harsh words from Washington and Delhi.

Both rich and poor say they are acting in their own self interest, and what makes the conflict so intractable is that both have very rational arguments.

This Reuters piece, filed from Washington, was posted on their Internet site in the wee hours of Sunday morning EDT---and I thank reader "h c" for sharing it with us.

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Martin Hutchinson: The Ultimate in Foolish Leverage

The Financial Times revealed this week that trades in index credit default swap (CDS) options had managed to avoid being listed on exchanges, with all the transparency requirements that brings, instead being allowed to continue trading on an over-the-counter basis. The amount outstanding is relatively small in relation to the $25 trillion of CDS outstanding, but lack of transparency is likely to hide a deep underlying problem. I had thought that CDS themselves represented the ultimate in unmanageability by conventional risk management. But index CDS swaptions are worse, being even more leveraged and hence even more liable to excessively large tail risks that can crater the world's banking system.

Let's start with a little background, for those who never read our 2010 book, "Alchemists of Loss," or who have forgotten it. CDS were invented in the 1990s as a way to hedge/bet on credit risk. As an instrument, they have a number of problems, one of which (significant for these new gambling chips) being that there's really no good way to determine how much the thing will pay off in a bankruptcy. The CDS bankruptcy "auction" in which a few million dollars' worth of defaulted debt is put up for auction, to determine the price of instruments worth billions, is far too easily gameable. That's why, when swap market practitioners like myself had looked at the possibility of CDS in the 1980s, we had decided there was no practical way to create a sound product.

Well, dear reader, this short essay is a must read, but don't feel bad if you get a little lost as you progress through it.  If you don't completely understand why you should be terrified of credit default swaps and swaptions, just know that you should be. [That, and collateralized debt obligations [CDO], which he doesn't mention]  You'll be scared enough by the parts you do understand.  This commentary by Martin was posted on the Bear's Lair over at the prudentbear.com Internet site a week ago yesterday---and I thank reader U.D. for bringing it to our attention.

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Guardian and Washington Post Win Pulitzer Prize for NSA Revelations

The Guardian and The Washington Post have been awarded the highest accolade in US journalism, winning the Pulitzer prize for public service for their groundbreaking articles on the National Security Agency’s surveillance activities based on the leaks of Edward Snowden.

The award, announced in New York on Monday, comes 10 months after the Guardian published the first report based on the leaks from Snowden, revealing the agency’s bulk collection of U.S. citizens’ phone records.

In the series of articles that ensued, teams of journalists at The Guardian and The Washington Post published the most substantial disclosures of U.S. government secrets since the Pentagon Papers on the Vietnam war in 1971.

The Pulitzer committee praised The Guardian for its "revelation of widespread secret surveillance by the National Security Agency, helping through aggressive reporting to spark a debate about the relationship between the government and the public over issues of security and privacy".

This article showed up on The Guardian Web site early yesterday evening BST---and it's the first offering of the day from Roy Stephens.

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Europe's Top Banks Cut 80,000 More Staff in Post-Crisis Overhaul

Europe's largest banks cut their staff by another 3.5 percent last year and the prospect of a return to pre-crisis employment levels seems far off, despite the region's fledgling economic recovery.

Spurred into action by falling revenue, mounting losses and the need to convince regulators they are no longer "too big to fail", banks across the globe have shrunk radically since the 2008 collapse of U.S. bank Lehman Brothers sparked the financial crisis.

Last year, the tide of bad news began to turn for European banks, which are among the region's largest employers.

But despite the improved outlook, Europe's 30 largest banks by market value cut staff by 80,000 in 2013, calculations by Reuters based on their year-end statements showed.

This short Reuters essay, filed from London, was posted on their Web site on Sunday morning EDT---and it's the second offering of the day from reader "h c".

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Banking Union Dominates Final European Parliament Session This Week

Crucial laws for the EU's banking union will headline proceedings in Strasbourg this week as MEPs gather there for the parliament's final session before May's European elections.

On Tuesday (15 April) deputies will debate and then sign off on the three final pieces of banking legislation: pan-EU rules protecting the first €100,000 of individuals' savings; a directive on bank recovery which sets out the hierarchy of shareholders and bondholders who will suffer losses if private banks get into difficulties; and a law establishing a single resolution mechanism for banks.

The agreement establishes a single regime to wind-down banks alongside a common fund worth €55 billion paid by the banks themselves to cover the costs of resolution. The rules will apply to all banks in the eurozone, as well as to those in countries which sign up to them.

This story, filed from Brussels, was posted on the euobserver.com Internet site yesterday morning Europe time---and it's the second contribution of the day from Roy Stephens.  It's worth reading.

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Washington Drives the World to War — Paul Craig Roberts

The CIA director was sent to Kiev to launch a military suppression of the Russian separatists in the eastern and southern portions of Ukraine, former Russian territories for the most part that were foolishly attached to the Ukraine in the early years of Soviet rule. 

Washington’s plan to grab Ukraine overlooked that the Russian and Russian-speaking parts of Ukraine were not likely to go along with their insertion into the EU and NATO while submitting to the persecution of Russian speaking peoples.  Washington has lost Crimea, from which Washington intended to eject Russia from its Black Sea naval base. Instead of admitting that its plan for grabbing Ukraine has gone amiss, Washington is unable to admit a mistake and, therefore, is pushing the crisis to more dangerous levels.

If Ukraine dissolves into secession with the former Russian territories reverting to Russia, Washington will be embarrassed that the result of its coup in Kiev was to restore the Russian provinces of Ukraine to Russia.  To avoid this embarrassment, Washington is pushing the crisis toward war.

This essay by Paul was posted on his Web site yesterday---and is definitely worth reading, especially for all serious students of the New Great Game.  My thanks go out to Roy Stephens once again.

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Europe Has Subjected the Greek People to a Cruel Experiment

Greece’s triumphant sale of five-year bonds to hedge funds (1/3) and global in investors – half based in London – tells us a great deal about the mental and emotional state of investors.

It tells us very little about the state of the Greek economy or Greek society. It is certainly not evidence that Greece is safely out of the woods. It is even less a vindication of EU/IMF Troika policies, an epic failure that will be studied years hence by scholars.

Normally when a country emerges from the trauma of an IMF austerity regime it has at least a tolerable level of debt, and if need be a devalued currency to restore competitiveness. Tough reforms matched by condign relief. The country is put on a viable path towards recovery.

This has not happened in Greece. Public debt is still 178pc of GDP, despite a haircut of private creditors near 70pc in effective terms, and despite (or because of) serial EU-IMF loan packages – the “occupation loans” as they are known in Greece. This level remains untenable for a country without a sovereign central bank and currency.

This Ambrose Evans-Pritchard blog, which is worth reading as well, was posted on the telegraph.co.uk Internet site on Saturday---and once again I thank Roy Stephens for sending it our way.

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US Corn Exports to China Drop 85% After Ban on GMO Strains – Industry Report

China’s rejection of shipments of US corn containing traces of unapproved genetically modified maize has caused a significant drop in exports. According to a new report, US traders have lost $427 million in sales.

Overall, China has barred nearly 1.45 million tons of corn shipments since last year, the National Grain and Feed Association, an American industry association, said Friday.

The tally is based on data from export companies and is significantly higher than the previous numbers reported by the media, which said roughly 900,000 tons were affected. US corn exports to China since January are down 85 percent from the same period last year, the report says.

China has been blocking shipments of American corn from its market since November. This was caused by the presence of the MIR162 genetically modified corn strain in the shipments. It was developed by the company Syngenta and has not been approved by the Chinese government since an application was submitted in March 2010.

This article appeared on the Russia Today Web site during the Moscow lunch hour on Saturday---and I thank South African reader B.V. for finding it for us.

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Nine King World News Blogs/Audio Interviews

1. John Embry: "The End Game Will Be Disastrous For the U.S. and the West"  2. James Turk: "Comex Casino Lies---and Skyrocketing to New All-Time High"  3. Dr. Paul Craig Roberts: "Why This Collapse Will Be So Horrific"  4. Michael Pento: "The End Game For the United States Will Be Catastrophic"  5. John Ing: "China's Massive Gold Hoard---and Global Flight From the Dollar"  6. Robert Fitzwilson: "Alarming Secrets U.S. and Saudi Arabia Are Hiding From the World"  7. Richard Russell: "The Cheapest Thing on the Planet is Silver"  8.  The first audio interview is with Dr. Paul Craig Roberts---and the second audio interview is with Bill Fleckenstein

[Please direct any questions or comments about what is said in these interviews by either Eric King or his guests to them, and not to me. Thank you. - Ed]

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Goldman Stands by $1,050 Gold Target on Outlook for Recovery

Gold will resume a decline as U.S. economic growth accelerates, according to Goldman Sachs Group Inc., which reiterated a forecast for the metal to end the year at $1,050 an ounce.

Bullion’s rally this year was spurred by poor U.S. data probably linked to the weather and rising tension in Ukraine, analysts led by Jeffrey Currie wrote in a report, describing the reasons as transient. With the tapering of the Federal Reserve’s bond-buying program, U.S. economic releases will return as the driving force behind lower prices, he wrote.

Gold’s 12-year bull run ended in 2013 as the Fed prepared to reduce monthly bond-buying that fueled gains in asset prices while failing to stoke inflation. Prices rose 10 percent this year even as the Fed cut purchases, with Russia’s annexation of Crimea and mixed U.S. economic data boosting haven demand. Last year, Currie described gold as a “slam-dunk sell” for 2014.

Of course there's no way that gold will even get a sniff of that price, but the mainstream media will print any drivel without question that Wall Street hands them.  I found this Bloomberg story, which was filed from Singapore, posted on their Web site very early yesterday morning Denver time.  I borrowed it from the sharpspixley.com Internet site.

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Question Greenspan About Gold at the New Orleans Conference in October

The greatest failure of financial journalism and investment fund management long has been the failure to put specific questions to central banks about their surreptitious interventions in the markets, their market rigging. But participants at this October's New Orleans Investment Conference may have an opportunity to start correcting that failure.

Astounding as it seems, former Federal Reserve Chairman Alan Greenspan has agreed to speak at the conference and to take questions from the audience, including questions about gold.

Of course there is no guarantee that Greenspan will answer the questions, or answer them honestly, rather than claim some obligation to protect the secrecy of Federal Reserve operations or deflect questions to the U.S. Treasury Department, whose Exchange Stabilization Fund is explicitly authorized by federal law to trade secretly not only in gold but also in any foreign currencies and "other instruments of credit and securities"...

This commentary by GATA secretary/treasurer Chris Powell was posted on the the gata.org Internet site yesterday.

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Bart Chilton Joins America's Largest Law Firm as Policy Advisor

It seems like it was only yesterday (actually it was early November) when infamous CFTC commissioner, legendary threat to gold manipulators nowhere, and Alexander Godunov impersonator Bart Chilton made a very dramatic exit stage left.

Here is what we said at the time:  Having "left traders in their own" during the shutdown, Chilton expressed "excitement" at his new endeavours after sending his resignation letter to President Obama this morning (more poetry? - or body doubles?) "I'm reminded of the old Etta James song, 'At Last,'" said Mr. Chilton, one of the agency's three Democratic members. "At last, we've got this rule here," and at last, he would be leaving the CFTC. This leaves us wondering whether Chilton, no longer burdened by the shackles of his meagre compensation, perhaps can finally do what he has been promising to do for years - become a whistleblower - after all he has insinuated so many times he knows where all the "dirt" is; unless, of course, it was all for show.

The rhetorical answer to the rhetorical question: of course it was all for show, confirmed moments ago when Chilton became just the latest "regulator" to take the great revolving door out of a worthless public service Washington office into a just as worthless, but much better paying private-sector Washington office. Presenting the latest employee of DLA Piper, the largest law firm in the US, and possibly the world, by number of partners - Bart Chilton, poet.

This should come as no surprise to anyone, as it certainly didn't for me.  This news item showed up on the Zero Hedge Web site late yesterday evening EDT---and I thank Elliot Simon for sending it to me just after midnight.

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New York Fed Contradicts Its Former Vice President About Gold Accounts

The Federal Reserve Bank of New York has contradicted the assertion of its former vice president that it has provided gold accounts to bullion banks.

The assertion of such accounts was made by H. David Willey, the former New York Fed vice president in charge of foreign central bank accounts and the gold vault at the New York Fed, in a speech given in May 2004 to the American Institute for Economic Reserve in Great Barrington, Massachusetts.

Willey said: "The Federal Reserve Bank of New York provides limited facilities for gold transactions. The bank will allow gold accounts only for foreign monetary authorities and for banks that are members of the Federal Reserve System, not for other gold dealers in the U.S. markets."

I found this commentary by Chris Powell posted on the gata.org Web site yesterday.

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Anglo American "Mulls Sale of South African Platinum Mines"

Anglo American's chief executive has hinted that the mining titan is looking to offload its strike-hit South African platinum mines to concentrate on open-cast extraction.

The London-listed firm's operations in South Africa's platinum belt north of Johannesburg have been idle for close to three months, forcing the firm to dig into reserves and hitting its bottom line.

About 80,000 miners are on strike and have vowed not to return to the shafts until their minimum monthly wage is doubled to 12,500 rand, around $1,200.

Anglo American says that demand, if met, would wreck its platinum subsidiary.

This AFP story, was posted on the france24.com Internet site yesterday morning---and I thank reader B.V. for his final contribution to today's column.

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Gold scarce, India's Silver Jewellery Exports Double

A shortage of gold as a raw material and the consequent decline in gold jewellery exports appears to have opened up new avenues of growth for silver jewellery in India.

India's silver jewellery exports rose 45.33% to $84.1 million in February 2014, and jumped 89% in the 11-month period to $1.35 billion, according to data from the Gems and Jewellery Export Promotion Council.

Council data also showed that silver jewellery exports rose 109% between April 2013 and February 2014, to $1.3 billion (Rs 81.4 billion) from $642 million (Rs 38.85 billion) in the same period of the previous financial year.

Pankaj Parekh, vice chairman of the Council said it was not just silver jewellery that shone in the overseas market, but rather exports of silver utensils, artifacts and other silver articles too continued with their upward trend to the US, parts of Europe and Japan.

This silver-related news item, filed from Mumbai, showed up on the mineweb.com Internet site yesterday---and it's a must read of course.

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Economists Notwithstanding, Indians Know How to Put Their Gold to Work

It's indestructible. It's fungible. It's beautiful. And for Indians, gold -- whether it's 18, 22, or 24-carat -- is semi-sacred.

The late distinguished Indian economist I.G. Patel observed, "In prosperity as in the hour of need, the thoughts of most Indians turn to gold."

No marriage takes place without gold ornaments presented to the bride. Even the poorest Indian outfits girls in the family with a simple nose ring of gold.

The India of old was known as "sone ki chidiya" or "golden sparrow," so opulent were the jewels of its rulers from the Moghul dynasty to the princely states.

For Indian women who were not formally educated, gifting them gold was their social security. Today, whether Hindu, Christian, Buddhist, or Muslim, bedecking the bride in gold invests her with good fortune, according to anthropologist Nilika Mehrotra.

This story, posted on the npr.org Internet site in the wee hours of yesterday morning, was something I found posted on the gata.org Internet site yesterday as well.  Its real headline reads "A Gold Obsession Pays Dividends For Indian Women".  Needless to say, it's worth reading.

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Koos Jansen: Shanghai Withdrawals Falling but Still Above Last Year's

Weekly withdrawals from the Shanghai Gold Exchange have been declining for five weeks but remain above withdrawals for the same period last year, gold researcher and GATA consultant Koos Jansen reports at the Swiss Internet site ingoldwetrust.ch.

This is another gold-related news item I found on the gata.org Internet site yesterday.

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Grant Williams: All Markets Are Rigged, Maybe Gold Most of All

All markets are rigged these days, perhaps the gold market most of all, fund manager Grant Williams writes in the new edition of his Things That Make You Go Hmmm... newsletter.

Williams writes: "In order for market rigging to be stopped, the changes have to come from those entrusted with regulation, in the form of stern punishments for those caught rigging them, and there must be changes to the rules to close the loopholes that allowed this kind of activity to occur in the first place.

"Instead, the bodies which supposedly oversee the markets are involved in the most serious rigging of all.

Grant's gold commentary isn't very long---and there isn't anything in it that you haven't see already in this column---but it, along with the rest of the column [which is a big read], is definitely worth your time.  I thank Chris Powell for wordsmithing the above two paragraphs of introduction.

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Apr 12, 2014

SEC Eyes Test That May Lead to Shift Away from "Dark Pools"

U.S. securities regulators are considering testing a proposed reform that could drive business to major stock exchanges and away from alternative trading venues such as "dark pools" that critics say may be hurting investors by reducing the quality of pricing.

The proposal, which has so far only been discussed among staff involved in policy making at the U.S. Securities and Exchange Commission, could limit how much trading occurs inside brokerages and in dark pools, according to people familiar with the matter.

The measure aims to address a concern among some regulators and academics about the increasing level of trading that happens outside of exchanges.

They say that the amount of trading being done in the "dark" means that publicly quoted prices for stocks on exchanges may no longer properly reflect where the market is, meaning that investors may not be getting the best prices for their trades.

This Reuters story, co-filed from Washington and New York, was posted on their website very early yesterday morning EDT---and I thank West Virginia reader Elliot Simon for today's first news item.  It's definitely worth reading.

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Doug Noland: Financial Stability

So I’m seeing significant confirmation of the bearish thesis – fundamentally and more recently in the marketplace. The global liquidity backdrop has become less bullish. Central bank liquidity has peaked. A strong yen restrains “carry trade” speculative leveraging, while changes in China’s currency management regime reduce the incentive for yuan “carry trades.” Especially with the prospect of Fed balance sheet growth ending later this year, the notion of the Fed as the markets’ liquidity backstop is now in question. From my perspective, the leveraged speculating community will need to adjust to a much less favorable backdrop for risk-taking and leveraging. The marginal operator in the marketplace is evolving from buyer to seller; from risk-taker to risk reducer and hedger; from liquidity provider to liquidity taker.

While I don’t expect market volatility is going away anytime soon, I do see an unfolding backdrop conducive to one tough bear market. Everyone got silly bullish in the face of very serious domestic and global issues. Global securities markets are a problematic “crowded trade.” Marc Faber commented that a 2014 crash could be even worse than 1987. To be sure, today’s incredible backdrop with Trillions upon Trillions of hedge funds, ETFs, derivatives and the like make 1987 portfolio insurance look like itsy bitsy little peanuts. So there are at this point rather conspicuous reasons why Financial Stability has always been and must remain a central bank’s number one priority (whether Dr. Evans appreciates this or not). Just how in the devil was this ever lost on contemporary central bankers?

Doug's most excellent commentary was posted on the prudentbear.com Internet site early yesterday evening---and I thank reader U.D. for sending it our way.

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Debt-Laden France Sells Off Lavish Foreign Properties

The official Manhattan residence of France’s ambassador to the United Nations went on sale this week, with French authorities hoping to collect 34.5 million euros ($48 million) for the luxury property.

The sale of the 18-room duplex overlooking Park Avenue – located in the same building that Jackie Kennedy and John D. Rockefeller at one time called home – has been planned for over one year, and it is part of a wider effort by the Foreign Ministry, known in France as the Quai d'Orsay, to slash costs across the globe.

The sale of the Park Avenue apartment was in line with a new “streamlined management of the ministry’s real estate stock,” Dana Purcarescu, spokeswoman for France’s embassy in Washington, told Reuters on Thursday.

While France is still a key player on the global stage, as military interventions in Africa have recently highlighted, it is no secret the former imperial giant has ceded influence to other Western and emerging powers over the years.

This interesting news item appeared on the france24.com Internet site yesterday---and I thank South African reader B.V. for sliding it into my in-box just before I hit the send button on today's column.

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Germany Risks EU Fines with Record Current Account Surplus

Germany's current account surplus will smash all records this year, risking a serious political showdown with Brussels and the ultimate sanction of EU fines.

A joint report by the leading German institutes, or "Wise Men", said the country's external surplus would keep rising to a modern-era high of 7.9% of GDP this year, far above the 6% limit set by Brussels under the new Macroeconomic Imbalance Procedure.

The Commission warned Germany late last year that it faced possible sanctions if failed to do its "homework", either by boosting consumption at home or by weaning its economy off excess reliance on foreign markets. The threat caused consternation in Germany's press and a vitriolic exchange with Brussels.

Well, dear reader, you have to ask yourself just one question---and that is "How did it come to this?"---penalizing a country for being too successful.  This Ambrose Evans-Pritchard commentary was posted on the telegraph.co.uk Internet site very early Thursday evening BST---and it's the first contribution of the day from Roy Stephens.  It's certainly worth skimming.

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EU Taking Putin's Letter on Gas Transit "Seriously" – Merkel

The EU is taking seriously President Vladimir Putin’s letter to 18 European countries, in which he warned that Ukraine’s debt crisis could affect gas transit from Russia, German Chancellor Angela Merkel said.

"There are many reasons to seriously take into account this message […] and for Europe to deliver a joint European response,” Itar-Tass reported Merkel as saying.

She said the issue would be discussed in a meeting between European Union foreign ministers Monday.

This news item showed up on the Russia Today website early yesterday evening Moscow time---and it's another contribution from Roy Stephens.

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Europe Folds as Putin Tells It to Pay Ukraine's Gazprom Bill, or Else

Another day ending in "y" means another day in which Putin plays the G(roup of most insolvent countries)-7 like a fiddle.

The latest: Europe should provide aid to Ukraine to ensure uninterrupted natural-gas deliveries to the region, President Vladimir Putin’s spokesman said as reported by Bloomberg.

"Russia is the only country helping Ukraine’s economy with energy supplies that are not paid for,"  Dmitry Peskov told reporters today in Moscow,  commenting on President Vladimir Putin’s letter yesterday to 18 European heads of state. “The letter is a call to immediately review this situation, which is absurd on the one hand and critical on the other.

Here's the Zero Hedge take on all this.  This commentary was posted on their website yesterday morning---and I thank reader B.V. for his second contribution to today's column.

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All Hail the Draghi Put: The Global Bond Market Is Now Well and Truly Broken

The evil of modern central banking can nowhere better be seen than in this week’s mad stampede into $4 billion of Greek bonds. The fact is, Greece is not creditworthy at nearly any coupon yield, but most certainly not at the 4.75% sticker that was attached to the offering.

After a 20% contraction the Greek economy has been literally eviscerated—with not much left except tourism, yogurt plants and a 27% unemployment rate. It has an impossible debt-to-GDP ratio of 170% and, worse still, almost all of that debt is owned by EC institutions and the IMF. That is, this week’s “winners” stand in line behind the “bail-you-in-first-brigade” that will find some way to crush private investors—-English law indentures or not—when repayment of their own tower of loans comes into question.

And the claim that Greece’s fiscal affairs have turned for the better is really preposterous.  Like Italy and some of the other PIIGS, the Greek government has discovered the trick of off-balance sheet financing by stiffing its vendors. The backlog of “payables” to pharmacies, hospitals, doctors, garbage haulers, road maintenance vendors and countless more, along with deep arrearages in payments to pensioners and other transfer payment beneficiaries, has been manipulated by the finance ministry and their Brussels overseers to a far-thee-well, and now totals in the tens of billions.

This commentary by David Stockman showed up on the Zero Hedge website late yesterday evening---and my thanks go out to reader Harry Grant for sending me this, as he just made it under the wire at 5:18 a.m. EDT.

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Seymour M. Hersh: Turkey – The Red Line and the Rat Line

In 2011 Barack Obama led an allied military intervention in Libya without consulting the U.S. Congress. Last August, after the sarin attack on the Damascus suburb of Ghouta, he was ready to launch an allied air strike, this time to punish the Syrian government for allegedly crossing the "red line" he had set in 2012 on the use of chemical weapons. Then with less than two days to go before the planned strike, he announced that he would seek congressional approval for the intervention. The strike was postponed as Congress prepared for hearings, and subsequently cancelled when Obama accepted Assad’s offer to relinquish his chemical arsenal in a deal brokered by Russia. Why did Obama delay and then relent on Syria when he was not shy about rushing into Libya? The answer lies in a clash between those in the administration who were committed to enforcing the red line, and military leaders who thought that going to war was both unjustified and potentially disastrous.

Obama’s change of mind had its origins at Porton Down, the defence laboratory in Wiltshire. British intelligence had obtained a sample of the sarin used in the 21 August attack and analysis demonstrated that the gas used didn’t match the batches known to exist in the Syrian army’s chemical weapons arsenal. The message that the case against Syria wouldn’t hold up was quickly relayed to the US joint chiefs of staff. The British report heightened doubts inside the Pentagon; the joint chiefs were already preparing to warn Obama that his plans for a far-reaching bomb and missile attack on Syria’s infrastructure could lead to a wider war in the Middle East. As a consequence the American officers delivered a last-minute caution to the president, which, in their view, eventually led to his cancelling the attack.

For months there had been acute concern among senior military leaders and the intelligence community about the role in the war of Syria’s neighbours, especially Turkey. Prime Minister Recep Erdoğan was known to be supporting the al-Nusra Front, a jihadist faction among the rebel opposition, as well as other Islamist rebel groups. ‘We knew there were some in the Turkish government,’ a former senior US intelligence official, who has access to current intelligence, told me, ‘who believed they could get Assad’s nuts in a vice by dabbling with a sarin attack inside Syria – and forcing Obama to make good on his red line threat.’

This essay, a must read for all serious students of the New Great Game, is one of the most serious pieces of investigative journalism that you're likely to see anywhere.  This is what the main stream press used to be like.  The story also falls into two different categories.  The first is, "you can't make this stuff up"---and the second is "the truth is stranger than fiction."  I hope you have time to read it, as it's sure to be a movie script some day.  I thank Casey Research's own Nick Giambruno for sending this my way on Monday, but for obvious reasons, it had to wait for my Saturday column.

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Dust Storms Cloud Iran’s Future

Iran is, literally, being blown away. Stifling dust storms frequently now envelop both big cities and rural towns across much of Iran, the world’s 17th-largest country. They threaten to disrupt crucial parts of public and economic life, education, commerce, public health, agriculture, trade and transportation. Swirling clouds of windblown silt, soil, and sediment already affected 23 of Iran’s 31 provinces in 2013, according to Vice President Masoumeh Ebtekar, head of the country’s Environmental Protection Organization.

Iran’s massive dust storms could also spill well across Iran’s borders, generating serious regional consequences and tensions. Dust clouds veiled Tehran for 117 days of the Iranian year, which ran from March 2012 to March 2013. And blinding sand storms blocked roads across the eastern province of Sistan and Baluchistan last summer, isolating nearly 60 towns and villages.

Dust storms regularly arise in arid and semi-arid regions around the world. Indeed, the Islamic Republic sits in the center of a Northern Hemisphere “dust belt” stretching from the west coast of North Africa, through the Middle East, and across South and Central Asia to China. Winds gusting over the open, level landscape of Iran’s dry plateaus, deserts, and salt flats readily pick up loose soil and sand, lifting bits of dirt and grit into the atmosphere and carrying it tens, hundreds, or even thousands of miles away.

I posted a story on this issue last year, but this two-page essay by David Michael really fleshes it out.  It showed up on the Asia Times website yesterday sometime---and if you don't read it, then you should at least look at the pictures.  I thank Roy Stephens for bringing it to our attention.

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Global Warming Scare Tactics

If you were looking for ways to increase public skepticism about global warming, you could hardly do better than the forthcoming nine-part series on climate change and natural disasters, starting this Sunday on Showtime. A trailer for Years of Living Dangerously is terrifying, replete with images of melting glaciers, raging wildfires and rampaging floods. “I don’t think scary is the right word,” intones one voice. “Dangerous, definitely.”

Showtime’s producers undoubtedly have the best of intentions. There are serious long-term risks associated with rising greenhouse gas emissions, ranging from ocean acidification to sea-level rise to decreasing agricultural output.

But there is every reason to believe that efforts to raise public concern about climate change by linking it to natural disasters will backfire. More than a decade’s worth of research suggests that fear-based appeals about climate change inspire denial, fatalism and polarization.

This short op-ed piece showed up on the New York Times website on Tuesday---and because of the content, had to wait for today's column.  It's also courtesy of Roy Stephens.

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China Fake Data to Skew More Export Numbers

China's data distortions will muddy analysis of the nation’s trade until at least June, making it harder to assess the strength of the world’s biggest exporter and second-largest economy.

That’s when China will provide figures that compare with what Royal Bank of Scotland Group Plc economist Louis Kuijs says are “pretty clean” numbers from May 2013 that followed a crackdown on inflated invoices used to disguise capital inflows. Government data yesterday that showed March exports unexpectedly fell 6.6% from a year earlier marked the peak of distortions, RBS said.

China’s reluctance to revise figures it’s acknowledged were inflated has left the job of explaining why the trade numbers are better than they appear to analysts like Kuijs, as the nation endures its worst economic slowdown since the global financial crisis. The distortions add to investor and analyst concerns that the quality of data from jobs to gross domestic product isn’t good enough for a country that’s driving commodity prices and Asian growth.

This Bloomberg news item, filed from Beijing, was posted on their Internet site Thursday evening Denver time---and I thank Elliot Simon for sharing it with us.

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Forex Scandal Hits Singapore Central Bank

A suspended Deutsche Bank trader may have had inappropriate links to the Monetary Authority of Singapore (MAS), it emerged yesterday.

London-based sales director Kai Lew was put on leave last month as part of the bank's internal probe into alleged foreign exchange benchmark manipulation.

The action was taken because she had communicated improperly with MAS, the Wall Street Journal reported yesterday.

The revelation means Singapore's central bank joins the Bank of England in having links with the emerging scandal.

This short news item was posted on the kitco.com Internet site yesterday---and it's courtesy of reader B.V.

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Three King World News Blogs

1. Egon von Greyerz: "Global Implosion---and Why the IMF Just Lied to the Entire World"  2. Dr. Paul Craig Roberts: "2014 Will Be a Year of Reckoning For the U.S."  3. John Hathaway: "Remarkable Events Taking Place As the War in Gold Heats Up".

[Please direct any questions or comments about what is said in these interviews by either Eric King or his guests to them, and not to me. Thank you. - Ed]

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John Hathaway: Tocqueville Gold Strategy Investor Letter, First Quarter 2014

We observe that many investors who understand, and may well have been deeply committed to the investment rationale for gaining exposure to potential currency debasement, have been scarred by two extremely difficult years of negative performance and are therefore on the sidelines looking for a comfortable point to reenter the sector. In the meantime, we have witnessed the entry of contrarian value investors whose rationale can be summed up as viewing gold mining shares as an inexpensive way to protect capital in the event of a broad correction in equity and capital markets. It seems highly certain to us that the positive returns generated by equity markets over the past two years have represented a substantial barrier for capital to reenter precious metals. We therefore believe that a bear market in equities would constitute a catalyst to drive gold and precious metals equities sharply higher.

In terms of supply and demand flows, the stage is set in our opinion for higher gold prices. No mining company management in its right mind would commit to a program of mine construction at current prices. Therefore, we believe that mine supply will shrink in the years ahead, especially after 2015. Given the lead times involved in new mine construction and even with a moderately rising trend in gold prices, supply could be constrained through the end of the current decade. The demand picture, especially from Asian consumers and possible central banks, looks robust. The flow of gold into China continues to set records and the all-important consumption by the Indian subcontinent remains solid. The Chinese government, acutely aware to the downside risks of its $4 trillion exposure to the US currency, has almost certainly been surreptitiously accumulating physical gold as a hedge. There has been no update from official sources on central bank holdings since 2009, and if China is still in an accumulation mode, one can be certain that they have taken full advantage of the two year price decline and that their future intentions remain a well-guarded secret.

This commentary by John was posted on the tocqueville.com Internet site early yesterday evening---and it's a must read for sure.  It's the same commentary that was posted in the King World News section just above this story, but without the perpetual hyperbole---and with the correct headline.

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Sprott Money Weekly Wrap-Up with Rick Rule

This week, Rick Rule discusses the debate between emerging markets and central banks, impact of South African strikes to platinum supply and prices, and differences between Japan and US economies.

This 8:47-minute audio interview was posted on the sprottmoney.com Internet site yesterday---and I'm not in a position to comment on it, as I haven't had the time to listen to it as of yet.

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Koos Jansen: New Physical Gold Exchange in Singapore

I was tipped of by one of my readers on a new gold exchange operating in Singapore; Allocated Bullion Solutions Singapore. After taking a look on their website I asked their public relations desk for the details of their business. Websites can be incomplete and I wanted to be sure on what kind of exchange it was. They kindly responded whereupon a comprehensive Q&A followed.

This item was posted on the ingoldwetrust.com Internet site yesterday---and I found it embedded in a GATA release.

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Alasdair Macleod: Gold and Bail-Ins

Even allocated gold probably isn't safe in an insolvent bank being restructured under government supervision, GoldMoney research director Alasdair Macleod writes today, especially since Western central banks may no longer have the gold they long have used to rescue bullion banks in trouble.

Alasdair's commentary is headlined Gold and Bail-Ins and it's posted at GoldMoney's Internet site.  This is another item I found on the gata.org Internet site yesterday.

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Gold Rush Threatens West Africa's Cocoa Future

A month ago, Bouafu Kouassi dug a neat circular hole in the middle of his one-hectare cocoa plantation in western Ivory Coast, and, sifting through the gravel on his shovel, found the unmistakeable traces of gold dust.

With luck, it could transform his life, but it could just destroy his farm. And as the story repeats across the cocoa heartland of the world's top producer and neighbouring Ghana, the second-largest, it could do lasting damage to the industry.

Today, nearly three dozen vertical shafts plunge down into the soil beneath Kouassi's cocoa trees, branching out into a web of underground tunnels 10 metres below the surface.

This longish, but very interesting Reuters essay---filed from Yoho, Ivory Coast---was posted on their website early yesterday morning BST---and I thank reader B.V. for his final contribution to today's column.  It's worth reading if you have the time---and/or the interest.

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Gold Smuggling Arrests Jump 750% YoY in India

While cases of gold smuggling in India have jumped 265% from 40 in 2012-13 to 146 in 2013-14, the number of people arrested has shot up by 750%, from 30 in 2012-13 to 255 in 2013-14, data from the Directorate of Revenue Intelligence shows.

"Gold imports through the legal channel have come down considerably. The chorus to decrease import duty is gaining everyday, and the recent trade figures are indicative that things have slumped to a new low," said Manish Kedia, bullion trader.

Data shows that gold smuggling cases at the Sardar Vallabhbhai Patel International Airport in Ahmedabad, have jumped 15 times in the last one year. Around 75% of the gold seized by customs officials at the airport in 2013-14 has been after August 2013, when the Indian government slapped 10% duty on gold imports.

This gold-related news story, filed from Mumbai, was posted on the mineweb.com Internet site yesterday sometime.

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Pressure on India to Cut Gold Duty Mounts

The stage appears to be set for India to reduce import duty on gold.

Government data released on Friday showed that gold and silver imports have declined 40% to $33.46 billion in 2013-14, as compared to the $55.79 billion in 2012-13. India's exports have jumped a bit, while imports dipped by over 8% narrowing the trade deficit.

A sharp decrease in gold and silver imports has also helped narrow the trade gap to $138.59 billion from $190.33 billion, though crude oil imports continued to surge ahead.

Bimal Jalan, former governor with India's central bank, the Reserve Bank of India (RBI), told newspersons that if India's current account deficit (CAD) "is okay, and it is comfortable just now, there is no reason to control gold imports, particularly if (gold) prices are reasonable."

Here's another story from the mineweb.com Internet site yesterday.  This one was also filed from Mumbai.

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Hugely Outnumbered – Western Gold Bears by Asian Gold Enthusiasts

Within an interesting almost hour-long discussion published on Chris Martenson’s Peak Prosperity website, Alasdair Macleod of Gold Money made the interesting – but in retrospect, patently obvious – comment that gold buyers and sellers in the West are hugely outnumbered by a traditionally gold hoarding community in Asia. And as Asian economies develop, this gold-oriented (carefully chosen word!) community is expanding rapidly as is its purchasing power. Macleod commented thus: “The point is there are 4 billion people in Asia who have got a very old-fashioned view of gold, and they have become wealthy over the last 20 years. And their view is likely to prevail against the ~1 billion of us in North America and Western Europe. I mean it really is as simple as that. It's not a question of Austrian economics, or Keynesian, or whatever. We're outnumbered.” 

This Asian appetite for gold has been expanding. It certainly hit a record last year as seen by the enormous volumes of recorded Chinese imports and gold movements out of the Shanghai Gold Exchange, the anecdotal evidence of a huge amount of gold being smuggled into India to try and circumvent the country’s gold import restrictions, and the massive level of gold trade seen through Dubai – most of which will have been destined for points East. Now even if this gold demand stutters this year given a growth downturn in the Chinese economy, it will still remain at an extremely high level – indeed Hong Kong has already reported record gold export figures to mainland China for the first two months of the year, with these figures supported by data showing big withdrawals of gold through the Shanghai Gold Exchange. With the prospect, perhaps likelihood, of India’s gold import restrictions being reduced, or lifted altogether one suspects that overall Eastern demand will continue to remain strong through the year, easily soaking up new mine supply and any forced sales out of the gold ETFs.

This commentary by Lawrie was posted on the mineweb.com Internet site yesterday as well.

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